Bank Hapoalim is negotiating to sell a large share of its mortgage-backed securities portfolio – and take a $1 billion loss on its investment.

Rumors of the sale began spreading last Wednesday, sending the share down 4.8% on twice the bank’s normal trading volume. All Bank Hapoalim would say is "The bank does not comment on rumors."

The mortgage-backed securities under discussion, Alt-A and Alt-B, are based on mortgage loans to credit-worthy homebuyers. Other loans may have a relatively high ratio of mortgage to home value.

Alt-B loans are similar to Alt-A only, worse.

The Supervisor of Banks, Rony Hizkiyahu, responded to Hapoalim’s investments in such risky securities by demanding that the bank recalculate its capital adequacy ratios – the ratio between equity and risky assets.

Hizkiyahu required the bank to double the capital requirement to cover such assets. This forces the bank to hold more capital in reserve against such assets, which restricts the use of such capital.

It limits the amount of credit the bank can give and reduces the leverage available to the bank.

Bank Hapoalim reported that as a result of the changes in its capital allocation due to the new requirements, its capital adequacy ratio dropped 0.35%.

So far the bank has written down $333 million as a permanent loss of value on its asset-backed portfolio; $43 million was written off as losses on its profit and loss statement.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977.
He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging.
Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes.
In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles.
His personal Alexander Technique website is Alexander90210.com.
Luke is the author of five books, including:
» The Producers: Profiles in Frustration
» Yesterday’s News Tomorrow: Inside American Jewish Journalism